BTI

We rate British American Tobacco p.l.c. (BTI) as a Buy with a composite score of 68.7/100 at a current price of $61.94. The stock scores above average across the majority of our six quantitative factors and ranks #133 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in stability (97th percentile) and value (89th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (38th percentile) and momentum (61th percentile) tempers our overall conviction. We assign a No Moat rating (33/100), Low uncertainty, and Standard capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

British American Tobacco p.l.c. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 68.7/100 places it at rank #133 in our full 7,333-stock universe. With a $89.2B market capitalization, British American Tobacco p.l.c. operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

Despite positive momentum (61th percentile), revenue contraction of -7% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 83% (+40.3pp vs sector) narrow to operating margins of 11% (+9.3pp vs sector) and net margins of 12.3%, yielding a gross-to-net conversion rate of 15%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $61.94, British American Tobacco p.l.c. appears undervalued relative to its fundamentals. Our value factor score of 89/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at EV/EBITDA of 4.5x (discounted to peers), P/B of 2.2x, P/S of 1.0x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Low uncertainty rating to British American Tobacco p.l.c.. The company exhibits strong financial stability with a beta of 0.11, and a stability factor in the 97th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.11 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 97th percentile and quality factor at the 72th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 83% provide a buffer against cost pressures; above-average stability (97th percentile) suggests predictable business dynamics; large-cap scale ($89.2B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate British American Tobacco p.l.c.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 26.5%, and the balance sheet is managed within acceptable parameters (D/E: 81%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; British American Tobacco p.l.c. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, British American Tobacco p.l.c. receives a Buy rating with a composite score of 68.7/100 (rank #133 of 7,333). Our quantitative framework assigns a No Moat (33/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 71/100.

Our analysis supports a constructive view on British American Tobacco p.l.c.. The combination of the current valuation, low uncertainty, and standard capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.